he last time Democrats held the presidency and Congress, the party spent its first year in power enriching big banks that had cratered the economy and then letting public money subsidize the Wall Street bonuses of their campaign donors. The spectacle gave Republicans a political bailout in the 2010 midterms, allowing them to depict themselves as anti-establishment populists challenging an elitist government. Twelve years later, history is rhyming. Democrats were vaulted into office on popular promises to tax the wealthy, but they are now generating national headlines about their proposal to provide new tax breaks narrowly targeted to enrich their affluent blue-state donors – just as a new survey shows nearly two thirds of Americans see the party as “out of touch with the concerns of most people.” And now the Republican machine is gearing up to demagogue the issue in 2022.
The situation is like a storyline from Veep satirizing liberal elitism: As millions of voters are being crushed by health care costs and higher energy prices, and as Democratic lawmakers have abandoned a $15 minimum wage, Democratic leaders are pushing a regressive proposal to allow wealthy property owners to deduct more of their state and local taxes (SALT) from their federal taxes.
This initiative, which would provide almost no benefit to the working class, isn’t some small tweak. After Democrats gutted their wildly popular initiatives to expand Medicare and lower drug prices, the tax initiative has now become one of the most expensive provisions in President Joe Biden’s entire Build Back Better legislation.
Under current law, the relatively small number of Americans wealthy enough to itemize their tax returns are barred from writing more than $10,000 of their state and local tax levies off their federal tax returns. In 2019, that was just 13% of Americans.
That means the entire SALT debate is about a policy almost exclusively affecting a small number of rich people, who already disproportionately benefit from other tax breaks. And really, it’s about the miniscule number of rich folk who happen to live in specific locales with higher state and local levies, and who pay more than $10,000 of those levies every year.
Mimicking Republicans who lied through their teeth pretending estate tax cuts help poor farmers, Democratic lawmakers from wealthy districts – and even some union leaders – have spent months telling a different story. Brushing aside criticism from the few outspoken Democratic opponents, they have insisted that a repeal or hike would mostly help “hard-working middle-class families,” as a group of affluent liberal-district Democrats recently claimed.
But a new Tax Policy Center analysis of the current Build Back Better legislation lays bare that flagrant lie.
It shows that while the Build Back Better reconciliation bill would still raise taxes on billionaires, adding SALT deductions to the bill would provide no significant help for the middle class, and would result in big tax breaks for very rich people just below the billionaire stratosphere.
In all, raising the SALT cap would result in a BBB bill in which two thirds of Americans who make over $1 million get a tax cut, and the average reduction for those households would be more than $16,000.
In a nation where 87% of people already make too little to itemize their tax returns and are therefore not eligible for any SALT deductions, Democrats’ whole campaign is designed to confuse and distract from all the data showing that repealing the SALT cap would be a more regressive policy than Donald Trump’s 2017 tax cuts, and would exacerbate racial and economic inequality.
But precisely because a group of high-profile corporate Democrats have insisted on constantly lying to their liberal-state constituents and pretending a SALT cap repeal is mostly for the middle class, many of their voters have almost certainly been convinced they are being crushed by the SALT cap.
Realizing these aforementioned facts were irrefutable, Democrats and their allies tried a different tactic – two union leaders published an op-ed asserting that “the SALT deduction is a tax break you receive for supporting your community” by paying higher state and local levies for schools and public services. A group of congressional Democrats also claimed that the SALT cap has led to “wealthy taxpayers leaving high-cost-of-living states” for low-tax jurisdictions.
The arguments fell flat because they are ridiculous. There are simple ways to more surgically reform the federal tax code to support communities without nakedly funneling tons of cash to billionaires – and those who reject that truth are either too ignorant, too unimaginative, or too corrupt to acknowledge an alternative. Meanwhile, there is scant evidence that the SALT cap has prompted mass tax migration.
In other words, the entire argument is another cynical lie.
That raises the big questions: Why is there so much lying about this? Why are Democrats treating a hike in the SALT cap as such a must-pass part of their economic agenda?
Two reasons – both of which illustrate the Democratic Party’s core motives.
First and foremost, a SALT cap repeal is a precision-targeted enrichment scheme for the corporate attorneys, hedge fund managers, business consultants, real estate investors, and other affluent caricatures who host and attend Democratic fundraisers in wealthy enclaves. Democratic leaders answer to the donor class concentrated in these rich locales, and that donor class covets the return of tax breaks for its McMansions (as do the wealthy congresspeople who stand to personally benefit from a SALT cap repeal).
Just as significant, though, is the motivating power of tribal partisanship.
Corporate Democrats who want to enrich their donors with a cap repeal are constantly reminding liberals that the cap was originally imposed by the bogeyman Donald Trump, whose motive was revenge. He wanted to punish blue-state donors that funded his opposition, and a SALT cap was the perfect way to do that.
But motives aside, the policy itself made sense: It actually limited a few giant tax breaks for the rich.
Left without a compelling argument for repealing the cap and enriching their donors, corporate Democrats have seized on the SALT cap’s Trump origin story. They are using that provenance to gin up Democratic support for the initiative by cynically weaponizing progressive voters’ hatred of the former president.
In effect, these Democrats are suggesting that the best way for liberals to get back at Trump is to pass a tax policy that provides coastal millionaires lucrative tax breaks and gives the middle class almost nothing.
This is a dream scenario for Republicans. They are getting another political bailout from a Democratic Party that is still captured by its affluent donors.
Ahead of the 2022 elections, the Republican party seems to sense the opportunity already.
Senator Tim Scott, the Republican from South Carolina, recently tweeted, “The Democrats’ SALT tax deduction is almost exclusively a tax cut for the rich. They’re out here yelling ‘tax the rich’ while crafting handouts for the wealthy behind closed doors.”
In October, Senate Minority Leader Mitch McConnell criticized “Democrats’ obsession with the so-called SALT cap,” saying: “Even as our colleagues draft the biggest tax hikes in half a century, they cannot resist the concept of special tax cuts for high earners in blue states.”
There is still an opportunity for senate Democrats to block the most egregious of these tax breaks. But if Democrats instead advance their current proposal, the Republican rhetoric is likely a preview of what’s to come in 2022 - a redux of some of the Tea Party’s most effective attacks during the 2010 midterms.
Only this time around, the Republican claims that Democrats are secretly working to enrich their elite donors would actually be true – and it will be boosted by millions of dollars of television ads designed to enrage swing voters.
Many of them are already frustrated about Democrats’ betrayals. Democrats now leaning into a tax policy easily caricatured as elitist threatens to turn that frustration into yet another midterm shellacking.
- David Sirota is a Guardian US columnist and an award-winning investigative journalist. He is an editor-at-large at Jacobin, and the founder of the Daily Poster. He served as Bernie Sanders’ presidential campaign speechwriter
Criminals!